Introduction
Incoterms (International Commercial Terms) are essential for international trade, defining responsibilities, costs, and risk transfer between buyers and sellers. This guide explains Incoterms 2020 with specific focus on chemical trade applications.
Incoterms 2020 Overview
Purpose and Structure
- Define delivery terms and allocate costs/risks
- Clarify responsibilities for both parties
- Standardize international trade practices
Four Groups:
- Group E: EXW (Departure)
- Group F: FCA, FAS, FOB (Main carriage unpaid)
- Group C: CFR, CIF, CPT, CIP (Main carriage paid)
- Group D: DAP, DPU, DDP (Arrival)
Key Changes in 2020:
- DAT renamed to DPU
- CIP insurance requirements increased to All-Risk
- FCA bill of lading option added
- Security requirements enhanced
Mode of Transport Application
All Transport Modes:
EXW, FCA, CPT, CIP, DAP, DPU, DDP
Sea and Inland Waterway Only:
FAS, FOB, CFR, CIF
Group E: EXW (Ex Works)
Seller Responsibilities
- Make goods available at premises
- Package for transport
- Provide commercial invoice
- Assist with export formalities (buyer risk/cost)
Buyer Responsibilities
- Collect goods at seller premises
- Load goods on vehicle
- All transport costs and risks
- Export and import clearance
Risk Transfer
- When goods placed at buyer disposal
- At seller premises, not loaded
Insurance
- Buyer responsibility from collection point
Chemical Trade Considerations
- Buyer arranges dangerous goods transport
- Seller provides SDS and safety information
- Loading responsibilities must be clear
- Export license may be buyer responsibility
Group F: Main Carriage Unpaid
FCA (Free Carrier)
Best for: Containerized cargo, air freight, multi-modal
Seller: Deliver to carrier, export clearance, loading if at premises
Buyer: Main carriage contract and costs, import clearance
Risk Transfer: When delivered to carrier at named place
FAS (Free Alongside Ship)
Best for: Bulk cargo, break bulk, traditional sea transport
Seller: Deliver alongside vessel, export clearance
Buyer: Load on vessel, main carriage, import clearance
Risk Transfer: When placed alongside vessel at port
FOB (Free On Board)
Best for: Traditional sea shipments, bulk chemicals
Seller: Load on vessel, export clearance
Buyer: Main carriage costs, insurance, import clearance
Risk Transfer: When goods on board vessel
Chemical Trade Notes:
- Loading costs and procedures clarity
- Dangerous goods declarations
- Vessel compatibility requirements
Group C: Main Carriage Paid
CFR (Cost and Freight)
Seller: Contract and pay main carriage, export clearance, deliver on board
Buyer: Insurance, import clearance, costs after arrival
Risk Transfer: On board at port of shipment (not destination)
Insurance: Buyer responsibility (critical point)
CIF (Cost, Insurance and Freight)
Seller: CFR plus minimum insurance (Institute Cargo Clauses C)
Buyer: Import clearance, costs after arrival
Risk Transfer: On board at shipment port
Insurance: Seller provides minimum coverage
Chemical Trade Notes:
- Minimum coverage may be insufficient for chemicals
- Dangerous goods insurance availability
- Additional coverage recommended
CPT (Carriage Paid To)
Best for: All transport modes, container shipments
Seller: Contract and pay main carriage, export clearance
Buyer: Insurance, import clearance
Risk Transfer: When delivered to first carrier
CIP (Carriage and Insurance Paid To)
Best for: High-value shipments, comprehensive coverage
Seller: CPT plus all-risk insurance (Institute Cargo Clauses A), 110% value
Buyer: Import clearance, costs after arrival
Risk Transfer: When delivered to first carrier
Chemical Trade Notes:
- Better coverage for dangerous goods
- Check chemical-specific exclusions
- Additional coverage options available
Group D: Arrival
DAP (Delivered at Place)
Seller: All costs/risks to named place, export clearance, main carriage
Buyer: Unloading, import clearance, duties/taxes
Risk Transfer: At named place, on arriving transport
Insurance: Seller responsibility to destination
DPU (Delivered at Place Unloaded)
Seller: All costs/risks plus unloading at destination
Buyer: Import clearance, duties/taxes
Risk Transfer: When unloaded at named place
Chemical Trade Notes:
- Unloading dangerous goods procedures
- Equipment compatibility
- Safety responsibilities
DDP (Delivered Duty Paid)
Maximum seller obligation
Seller: All costs/risks, export/import clearance, duties paid
Buyer: Minimal involvement, make goods available
Risk Transfer: At destination, import clearance completed
Chemical Trade Notes:
- Import license requirements
- Dangerous goods import permits
- VAT recovery complications
- Local representation needed
Risk and Cost Allocation
Risk Transfer Points
Shipment Terms (F and C):
- Risk transfers at origin
- Buyer bears transit risk
- Critical for insurance planning
Arrival Terms (D):
- Risk transfers at destination
- Seller bears transit risk
- Higher seller responsibility
Cost Allocation
Seller Costs:
- Production and packaging
- Inland transport (origin)
- Export clearance
- Main carriage (C and D terms)
- Insurance (CIP, CIF, D terms)
Buyer Costs:
- Main carriage (E and F terms)
- Insurance (E, F, C except CIF/CIP)
- Import clearance
- Duties and taxes
- Inland transport (destination)
Insurance Considerations
Coverage Levels
Institute Cargo Clauses ©:
- Minimum coverage (CIF requirement)
- Major casualties only
- Not suitable for chemicals typically
Institute Cargo Clauses (A):
- All-risk coverage (CIP requirement)
- Broadest coverage
- Recommended for chemicals
Chemical-Specific Coverage
Standard Exclusions:
- Inherent vice, ordinary leakage
- Delay, insufficient packaging
Special Coverage:
- Dangerous goods endorsement
- Chemical contamination
- Temperature control
- Spill cleanup
Selection Guidelines
Factors to Consider
Logistics Capability:
- Seller freight expertise
- Buyer import capability
- Control preferences
Cost Certainty:
- Fixed vs variable costs
- Budget planning needs
Risk Management:
- Risk tolerance levels
- Insurance coverage
- Claim handling
Chemical Industry Norms
Bulk Chemicals: FOB or CIF
Packaged Chemicals: FCA, CIP, DAP
Dangerous Goods: Clear responsibility allocation essential
Contract Clauses
Recommended Wording
"Incoterms 2020 [Term] [Named Place], Incoterms 2020"
Example: "CIP Shanghai to Rotterdam, Incoterms 2020"
Additional Clauses
Insurance: "Seller to provide all-risk insurance covering 110% of invoice value with Institute Cargo Clauses (A)"
Dangerous Goods: "Seller responsible for proper dangerous goods classification, packaging, labeling, and documentation per IMDG Code"
Common Issues and Solutions
Unclear Delivery Point: Specify exact address, terminal, or berth
Cost Disputes: Detailed cost breakdown in contract
Risk Gap: Clear insurance requirements
Version Confusion: Always specify "Incoterms 2020"
Conclusion
Proper Incoterms selection is crucial for successful chemical trade. JBSR advises customers on optimal Incoterms based on product type, destination, and risk preferences, ensuring clear responsibility allocation.